Self-Insurance in Texas

March 24, 2014

With insurance premiums rising thanks to the Affordable Care Act (ACA), Americans are losing their insurance and facing costly exchange plans. Mandates on coverage and restrictions on varying policy rates based on age and health status have made insurance coverage unaffordable for many, says John Davidson, a senior policy analyst at the Texas Public Policy Foundation.

Before ObamaCare, a 27-year-old man in Dallas could have purchased catastrophic coverage for $69 per month.

Now, the cheapest plan available on the federal exchange is $173 per month.

While ACA proponents point to subsidies that offset higher costs, subsidies are hardly available to everyone. Unless the 27 year old earned less than $29,000 per year, he would not be eligible for subsidies and would have to pay the full cost of the premium out of pocket.

Uninsured young people and firms that have fewer than 50 people (these firms also tend to have younger employees) are going to see significant price increases from purchasing individual and small business exchange coverage. But self-insurance provides a way for small businesses and individuals to opt out of ACA-mandated coverage.

Self-insured health plans pay directly for employees' medical claims, instead of purchasing traditional insurance coverage. These plans are not subject to state insurance regulations or ACA regulations. Instead, they are regulated under the Employee Retirement Income Security Act (ERISA). Eighty-three percent of employees at large firms were enrolled in self-funded or partially self-funded plans in 2013, compared to only 16 percent of employees at small firms.

A self-insurance plan combined with stop-loss coverage (which covers large or unexpected medical bills after a certain dollar amount, limiting the financial risk) could allow small firms to evade ACA requirements and could offer plans that are actually more tailored to their employees' needs.

Some states are beginning to restrict the availability of stop-loss coverage through "fair share" laws, in order to funnel people into the federal exchange. Texas should not do this. In fact, the state should exempt stop-loss coverage from premium and maintenance taxes, which would make it more affordable for small employers. Lawmakers should also pass legislation that authorizes individual self-insurance. This would satisfy the individual mandate but would not force Texans to pay the high cost of exchange coverage. Individuals would have to set some amount of capital in order to qualify as a personal insurer. Like the small business self-insurance plans, these individual plans would be exempt from ACA regulations, because they are really a health care savings program rather than insurance.